PayPal Credit: A guide to PayPal’s virtual credit line

PayPal Credit: A guide PayPal's virtual credit line

If you use PayPal, you’ve probably seen the “PayPal Credit” payment option that appears on your account. Or perhaps you’ve already used it.

PayPal Credit, sort of a cross between an installment loan and a credit card, allows users to stretch payments for online purchases over time. Currently, for purchases of $99 or more, consumers have six months to pay with no interest.

If you reach your credit limit, PayPal might decline your purchase, or it might increase your credit line. It has no annual or application fees, and if you miss a payment, it doesn’t show up on your credit report.

On the other hand, its interest rate is higher than the average for credit cards, it won’t help you build a credit history as no activity is reported to the credit bureaus – either positive or negative – and you’re likely to spend more with it than you otherwise would with a regular PayPal account.

Is PayPal Credit right for you? What are its pros and cons? CreditCards.com spoke with PayPal Credit representatives and various experts to answer these and other questions.

What is PayPal Credit?
For PayPal users familiar with its “Bill Me Later” service, this is the same thing by a different name. The company changed the name of the service in 2014.

  • It’s a credit line extended by PayPal.
  • It can be used in conjunction with a PayPal account.
  • It’s accepted by any vendor who accepts PayPal.

“It’s a payment option in your PayPal wallet,” says Nancy Hood, senior director of PayPal Credit consumer marketing and distribution. “It allows (consumers) to take that line of credit and use it across that merchant network.”

Some consumer advocates are concerned that its similarity to traditional PayPal could be problematic to users who aren’t adept at managing credit.

To millennials, this will feel an awful lot like a debit card-funded account, says Robert DeYoung, finance professor at the University of Kansas School of Business. “But they’re adding 20 percent [of interest] to the price of everything they’re buying if not paid in full by the end of the month or the promotional offer period. The key is to understand the difference between a debit card and a credit card.”

Do customers get an actual credit card?
No. This is a virtual line of credit within the PayPal digital wallet.

PayPal also offers a co-branded Mastercard through Synchrony Bank, a PayPal Prepaid Mastercard, and a recently released PayPal Cash Back Mastercard, but those are different products.

Who is the lender for PayPal Credit?
Comenity Capital Bank, issuer of store credit cards from a number of retailers, such as Pottery Barn, Lane Bryant and Abercrombie & Fitch.

What kind of credit line do they offer?

Is PayPal Credit safe?

How do customers receive their bills?

  • Customers can access their statements online any time.
  • They can also receive email bills or snail-mail bills every month, if they want.
  • Statements include total balance, minimum payment due, and how much needs to be paid to avoid interest.

What is the application fee, annual fee and APR?

  • There is no application fee or annual fee.
  • The annual percentage rate is 19.99 percent for standard purchases and cash advances.

For credit cards, the current rate average hovers around 16 percent, according to CreditCards.com’s Weekly Rate Report.

“Compared to a lot of credit cards, 20 percent is not that bad,” says Mark Fenster, law professor at the University of Florida. But if your credit is good, you can likely get better rates elsewhere. “You’re trading convenience for what could be a better deal.”

DeYoung agrees. “Twenty percent is not an inexpensive product,” he says. What concerns him more is that, “If you’re very creditworthy, the rate doesn’t go down. They just lend you more. That’s something folks have to understand.”

Does PayPal Credit offer special offers?
Currently, for purchases of $99 or more, users can receive six months with both no payments and no interest.

“That’s a longer period than you would get from a traditional credit line,” says John Breyault, a vice president with the National Consumers League. But you want to be sure you can and do pay off the entire balance within six months.

How do customers pay their monthly bill?

  • Electronically, through PayPal’s app, or online.
  • Users can also send a check, if they want.

Is there a late fee or penalty rate?

  • There’s no penalty rate.
  • The first time a borrower is late, the fee is “up to $25, [after that] it’s up to $35,” says Hood.

How does someone apply for PayPal Credit?

  • Go online to PayPal.com, look for “PayPal Credit,” and click the button to apply.
  • You will have to enter your date of birth and the last four digits of your Social Security number.
  • You’ll get an instant answer.

The lender will pull the applicant’s credit report and check the consumer’s credit score, says Hood. The company also uses the customer’s information available on their PayPal account to verify identity and vet them for creditworthiness.

Like most lenders, the company also checks credit through a “hard inquiry,” which can shave a few points off your credit score.

If you’re approved, you’ll get a credit line of at least $250.

Do PayPal users spend more once they have PayPal Credit?
“Very much so,” says Hood. She says spending traditionally increases about 30 percent after a PayPal user is approved.

“If you’re getting this line of credit because you’ve run through your stored balance on your PayPal [account], that should be a signal” to slow spending, says DeYoung.

Even though you’re on PayPal, this is a loan, Rheingold says. “You should always be wary, whenever you borrow.”

How does an existing account holder increase their credit line?
If you attempt to make a purchase that will cause your outstanding balance to exceed your credit line, you will be evaluated for a credit line increase during the checkout process, according to PayPal Credit’s website.

As part of this process, PayPal makes only soft inquiries, says Criscoe, which don’t impact the credit score.

Does PayPal Credit report to any of the three credit bureaus?
“We don’t report positive or negative behavior,” says Criscoe.

  • The upside of this: If you ever miss a payment, it won’t affect your credit score.
  • The downside: Managing your PayPal Credit account responsibly, paying in full and on time every month, won’t help you build credit history. In that case, consider applying for a secured credit card instead.

Cautions for using instant credit?
“Read the fine print” before applying, says Rheingold. “And you really do need to shop around. Convenience shouldn’t be the only thing you’re looking for.”

PayPal Credit payment by default?

In 2015, PayPal Credit was sanctioned $25 million by the Consumer Financial Protection Bureau for deceptive practices. The consumer watchdog agency found that PayPal “illegally” signed up consumers for its online credit product. Before the sanctions, some consumers complained they selected their traditional PayPal accounts at checkout, only to have the service default to PayPal Credit. PayPal Credit spokesman Josh Criscoe says the company’s “fully aligned with regulators in giving our customers transparency on our products.”Accountholders should, however, “recognize what the default payment option on their PayPal account is and learn to change it if you don’t like it,” says University of Florida law professor Mark Fenster.

How to change your PayPal default payment option:
1. In your PayPal account
, go to “Wallet” to see your available payment methods, including bank accounts and credit cards linked to your account. If you’ve already signed up for PayPal Credit, it will show up here.

2. Click on the option that you want to make your default payment method. Then check the star icon next to the legend “Preferred when paying online.”

3. Next time you want to make a purchase using PayPal, this payment method will appear as default – but you can always select a different one before checkout, if so desired.

4. If you don’t want PayPal Credit to be your default payment method, make sure it’s not marked as “preferred.”

See related: If disputing a charge with PayPal, approach merchant firstPayPal lending arm fined for deception, abusesUsing PayPal? 10 tips to stay safe


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Updated: 11-21-2017